TAIPEI -- The battle for technological supremacy between the U.S. and China is a hot topic among Taiwanese semiconductor engineers in Hsinchu, Taiwan's answer to Silicon Valley. Several predict that China will use its enormous financial muscle to develop its chip industry and fend off restrictions imposed by the U.S.
"Chipmaking technology is concentrated in the hands of cash-rich companies, which are now mostly Chinese," said one engineer in his 40s who has worked for both Chinese and Taiwanese companies.
"For U.S. semiconductor equipment makers, Chinese tech companies are the most important customer, and the U.S. is doing what it can to pressure China to gain the upper hand in trade talks, rather than trying to deliver a fatal blow to Chinese companies," he said.
The U.S. has criticized Chinese companies for stealing technology from their American counterparts. Last year, Chinese telecommunications equipment maker ZTE ran into financial trouble after it was temporarily blocked from supplying chips to U.S. companies. In October of that year, U.S. authorities added Fujian Jinhua Integrated Circuit to a list of organizations prohibited from buying components, software or technology goods from U.S. companies.
Beijing is determined to foster its own chipmaking technology, dismissing complaints from Washington. "Chinese companies are offering two to three times [Taiwanese engineers'] current salaries to work for them," said another engineer.
In the face of political pressure from Beijing, Taiwanese President Tsai Ing-wen has drawn closer to Washington and is coordinating with the U.S. in its sanctions against China. According to one industry insider, Taiwan's United Microelectronics last year terminated a technology cooperation deal with Fujian Jinhua Integrated Circuit in response to behind-the-scenes pressure from Taipei. The island's government in January also purged Huawei Technology equipment from public research institutions.
But Taiwanese manufacturers are starting to chafe under the get-tough policy. They feel it is unwise to antagonize China, with its huge market.
Last November, a local newspaper reported that ASE Technology Holding Management Director Bough Lin had criticized the government for restricting the operations of Taiwanese companies, saying authorities should not spank their "sons" in order to help a "foreigner." His company is the world leader in semiconductor sealing and testing.
As demand for Apple smartphones slows, Chinese customers are looming larger for suppliers such as Taiwan Semiconductor Manufacturing Company. The chipmaker's share of sales going to Chinese customers rose 6 percentage points to 17% in the year ended December 2018. C.C. Wei, TSMC's CEO, said in January that China is still important and that the company remains a contract manufacturer "for all customers."
But as they come to rely more heavily on the Chinese market, Taiwanese companies face greater risks should Beijing's policies change unexpectedly. They must weigh those risks against the handsome profits they stand to make from Chinese customers.